Unfortunately this line of thinking is pretty infectious and affects more than just the Valley's pre-IPO startups.
I work for a large-ish company (will be approx 3000. employees by YE 2014) that has been public since the last tech bubble. We've run in the red for the last six years pivoting into an entirely new line of business -- essentially new investors bought an already public company and sold off the existing business to avoid having to IPO. Their exit strategy for the business is to eventually have one of our client companies buy us out. All of our contracts are structured to make such an acquisition a (from our management's perspective) sweetheart deal.
Only the way we've been going about it is all wrong. Basically these "very large companies" that we work hard to land contracts with we allow to give us very unfavorable terms and to pay us below cost. This is in a market where we have only one competitor and they can't come close to providing our level of service. It's blatantly obvious that they're getting better deals at the price for service they have now while we take all of the risk/loss.
We had our very first break-even quarter sometime this year (even by GAAP principles!) and the board cut everyone very big checks that put us back in the red (even by our non-GAAP principles!). Our executives are not tech executives, they're MBA-types from the retail and call center industries, but they drink the exact same Kool Aid.
I think their line of thinking goes something like this:
1) We have a really awesome product.
2) We lose tons of money providing that product. (Aside: Holy shit, employees that actually are our product are expensive! We couldn't possibly afford to hire developers to make our large staff more efficient! No way! We're a technology company!)
3) ???
4) Our customer base that we're totally supplicant to will buy us out because fairies.
Eventually this is going to end in tears and 3000 very overworked people are suddenly going to be much less so.
I work for a large-ish company (will be approx 3000. employees by YE 2014) that has been public since the last tech bubble. We've run in the red for the last six years pivoting into an entirely new line of business -- essentially new investors bought an already public company and sold off the existing business to avoid having to IPO. Their exit strategy for the business is to eventually have one of our client companies buy us out. All of our contracts are structured to make such an acquisition a (from our management's perspective) sweetheart deal.
Only the way we've been going about it is all wrong. Basically these "very large companies" that we work hard to land contracts with we allow to give us very unfavorable terms and to pay us below cost. This is in a market where we have only one competitor and they can't come close to providing our level of service. It's blatantly obvious that they're getting better deals at the price for service they have now while we take all of the risk/loss.
We had our very first break-even quarter sometime this year (even by GAAP principles!) and the board cut everyone very big checks that put us back in the red (even by our non-GAAP principles!). Our executives are not tech executives, they're MBA-types from the retail and call center industries, but they drink the exact same Kool Aid.
I think their line of thinking goes something like this:
1) We have a really awesome product.
2) We lose tons of money providing that product. (Aside: Holy shit, employees that actually are our product are expensive! We couldn't possibly afford to hire developers to make our large staff more efficient! No way! We're a technology company!)
3) ???
4) Our customer base that we're totally supplicant to will buy us out because fairies.
Eventually this is going to end in tears and 3000 very overworked people are suddenly going to be much less so.